Luxury stocks: Will 2025 be a year of Gucci?

Investing.com -- As 2025 approaches, the question of whether Gucci will reclaim its position as a leader in the luxury sector looms large. 

Analysts at UBS are skeptical about such prospects, citing a challenging market context and persistent issues within its parent company, Kering (EPA:PRTP ). 

Gucci, which accounts for approximately 70% of Kering's EBIT, has faced struggles over the past five years, including declining sales and profitability. 

Despite management’s efforts to revitalize the brand, the outlook for 2025 suggests that it may not yet be Gucci's time to shine.

The brand is forecasted to experience a modest sales contraction of 1% in 2025. While retail sales are expected to remain flat, the decline in wholesale volumes reflects a broader trend of subdued momentum. 

Gucci's EBIT margin is projected to decrease to 19%, marking a slight drop from the previous year. 

This contraction underscores the high costs associated with strategic initiatives, including those led by its new creative director, Sabato de Sarno. 

UBS analysts note that while these measures are essential for long-term brand elevation, they are unlikely to deliver immediate financial turnaround.

Adding to Gucci's challenges is the broader economic environment, which has proven less favorable to brands targeting aspirational consumers. 

Luxury sales in China, a critical market, are expected to remain weak, with a projected decline of 3% in 2025. 

In contrast, the American market shows signs of recovery, with growth estimated at 5%, but this rebound alone may not offset Gucci's ongoing struggles.

Kering as a whole faces a daunting task in balancing brand investments with profitability. Group sales are expected to grow by only 1% in 2025, while EBIT margins are predicted to remain under pressure. 

The company's efforts to stabilize finances, including potential retail store closures and a focus on free cash flow generation, reflect a cautious strategy amid uncertain conditions.

Analysts have also flagged risks that could further complicate Gucci's trajectory. These include the possibility of another change in creative leadership and financial strain from Kering's other commitments, such as a €4 billion put option on Valentino. 

Both factors could weigh heavily on the group’s balance sheet and its ability to allocate resources effectively.

Source: Investing.com